Gas Tax Increase Floated as Fiscal Cliff Fix

An increase in the federal gas tax is being floated on both sides of the aisle as one possible contribution to any grand bargain to avoid the fiscal cliff.

Oil and gas industry groups sent a letter Tuesday to Congressional leaders asking that they not consider increasing the levy because of its potential to harm both consumers and the industry itself, reported US News and World Report.

Though it has not been one of the primary issues addressed in the public debate, members of Congress are discussing an increase in the gas tax as among the options to raise revenue and avoid the fiscal cliff.

Some transportation and industry experts are suggesting the per-gallon fee could serve multiple roles if lawmakers approve an increase.

"Establishing a sustainable resource base for transportation needs to be part of any grand bargain," Emil Frankel, a former transportation expert in the George W. Bush administration and now director of transportation policy at the Bipartisan Policy Center, said in an interview with CNN. "In the short run, raising the gas tax is the best way to do that."

Currently, the federal gas tax stands at 18.3-cents-per-gallon, and brings the government about $32 billion in revenue per year.

In 2010, Democratic Sen. Tom Carper or Delaware, and former Republican Sen. George Voinovich of Ohio, suggested the Simpson-Bowles commission consider an increase to the gas tax as a two-pronged way to help federal deficit as well as the debt.

The commission had already recommended a 15-cent-per-gallon increase to fund highway maintenance and construction. Carper and Voinovich proposed upping the hike by 10-cents-per-gallon, with the additional revenue earmarked for payments on the federal debt.

The senators claimed raising the tax by 25-cents-per-gallon would generate about $200 billion over five years, but the idea was ignored at the time.

Oil and gas industry leaders sent a letter to the two parties' Congressional leaders on Tuesday asking that they not consider any changes to the federal gas tax ahead of “comprehensive tax reform” because of the harm it poses to “one of the few bright spots” in the economy during the last several years.

“Through hundreds of billions of dollars invested to develop vast new oil and natural gas reserves, and to expand our refining capacity, this industry is not only producing the energy a growing economy demands, but also creating tens of thousands of high paying jobs while generating billions in new revenue for the government,” the letter signed by representatives of 14 oil and gas trade associations.

“Therefore, any attempts to target the oil and natural gas industry for punitive tax treatment should be avoided as higher taxes could put the economic growth we've created at risk.”

An unidentified highway lobbyist told Politico that Republicans in the House are considering seriously the idea of increasing the gas tax, despite experts who suggest the burden would mostly be felt by middle- and lower-middle class Americans the most.

"The burden would fall on the great middle class, not on the millionaires and billionaires," said Ken Orski, publisher of the infrastructure industry publication Innovation NewsBriefs. "That's why the White House is staunchly opposed to such an increase, and why there's virtually zero support in Congress."

On the flip side, Democrats have suggested that an upstream fee — basically a tax on oil production, that may also come with the opening of additional lands for drilling — is a better way to go. Industry experts say those fees would be passed along to consumers regardless of how the additional government revenue is used.

Erik Milito, the American Petroleum Institute’s director of upstream and industry operations, said the best option is to avoid increasing fees or taxes and open more lands to drilling. He admits this would not do much for the deficit, debt or highway improvement issues in the short term.

“We think the way to get money is simply by providing access,” Milito said. “But if you’re not making these decisions now because you’re only looking at the short term, then you’re never going to see these benefits.”

Revenue from any potential new drilling, he added, likely would not be seen for another decade because of research and development, and oil actually being pulled from the ground.

Many state governments, including those led by Republicans, already have moved to increase their gas taxes as a way to generate new revenue, both for road upkeep and for other budgetary issues, reported the Washington Times.

The potential double-shot of federal and state gas taxes increasing is dangerous for many politicians, said John Townsend, a spokesman for AAA Mid-Atlantic. He adds, however, that it is becoming necessary regardless of hesitance by elected officials at all levels of government.

"It's the third rail of politics now — if you touch it, you perish," Townsend said. “We wish people would have the political courage to do it, but they haven't shown it in two decades. And if it was radioactive last year and nobody was willing to do it in the United States, it's going to be even more radioactive this time around."

The last time the federal gas tax was increased was under President Bill Clinton, in 1993, when it rose from 14-cents-per-gallon to the current 18.3 cents, according to Forbes. That increase was passed as part of a deficit reduction deal in Congress, as was the one signed in 1990 by President George H.W. Bush.